The buyer's Quality of Earnings firm is reducing our adjusted EBITDA by two hundred thousand dollars, claiming our lean management structure requires hiring replacement executives at full market compensation. How do we defend our operational model against phantom salary haircuts?

Question

Tyler Smith · Accepted Answer

Buy-side QofE firms frequently fabricate EBITDA haircuts by asserting that a lean founder-led company has artificially low operating overhead. They argue that post-closing, the business will need to hire a full-time CFO, VP of Sales, or Chief Operating Officer at institutional salaries, and they deduct those hypothetical costs directly from your adjusted EBITDA, effectively cutting millions from your enterprise value.

To defeat this adjustment, you must provide documented operational proof that your management seats are fully functional and sustainable without adding payroll:

- Present your functional Accountability Chart showing clear seat ownership, where every vital function is permanently filled by leaders who GWC (Get it, Want it, and have the Capacity to do it) their seats without founder dependency.
- Provide past Level 10 Meeting minutes and Scorecard histories demonstrating that weekly operational metrics, revenue generation, and financial reporting run autonomously without outside executive intervention.
- Highlight documented, automated workflows and internal systems that allow your existing team to maintain high operational leverage, proving that your lean head count is an intentional technological advantage rather than an understaffed vulnerability.

Take the position that unhired personnel are speculative pro forma investments for future growth, which belong on the buyer's post-closing balance sheet, not as an EBITDA deduction against historical performance. You are selling historical performance, not funding the buyer's future organizational preferences.